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Political Economy and Structural Transformation: Democracy, Regulation and Public Investment

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Abstract

A large literature in Economics has recently studied the process of structural transformation, understood as the process of reallocation of economic activities across sectors in the process of development. In this paper we review the literature that has identified the political economy factors that have facilitated on hindered this processes. In particular, we review the literature on the political distortions that can explain these differences in productivity and the prospects for transformation. We identify the limitations of this literature and suggest avenues for future research. We review the literature on political distortions and their relation to economic outcomes, including various forms of state capture and firm-political connections. We study the prevalence of each type of political distortion and its observed effects on economic outcomes, such as prices, procurement and, consequently, on unobserved outcomes such as consumer surplus and welfare. This review paper serves as the Inception paper of the Political Economy Theme of the Structural Transformation and Economic Growth (STEG) research consortium.

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  • Monica Martinez-Bravo & Leonard Wantchekon, 2021. "Political Economy and Structural Transformation: Democracy, Regulation and Public Investment," Working Papers wp2021_2110, CEMFI.
    • Handle: RePEc:cmf:wpaper:wp2021_2110
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    More about this item

    Keywords

    Institutions; distortions; policy; capture.;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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